Boglehead Approved Delaware Statutory Trust?

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Rolyatroba
Posts: 206
Joined: Mon Apr 22, 2013 1:14 pm

Boglehead Approved Delaware Statutory Trust?

Post by Rolyatroba » Wed Dec 23, 2015 11:10 am

We are in the process of selling a rental property, and because the mortgage is 20% of the sales price, we have to either pay that amount into the 1031 exchange or borrow that amount as part of the purchase of the replacement property (perhaps 2 properties), in order to fully avoid the cap gains tax (even with about 25% of the gain, we'd be well into the 20% Federal bracket--plus the 3.8% surcharge and state taxes). Note that paying into the 1031 instead of borrowing is not an option--it would exhaust (and then some) our after-tax accounts, and require us to take big cap gains in VTI!

It seems our options are to either invest in a DST (which has a better financing feature than a TIC) or to purchase another rental property with a mortgage.

I like the hands-off part of the DST, but don't like that it isn't a diversified fund or that it is something that is sold by a broker.

As for acquiring rental property, in the areas we'd want to buy (because we might live in the replacement property for the 121 tax exclusion), the cash flow might be slightly negative--something we just don't like. The DST seems to have a decently positive cash flow (albeit that is not guaranteed).

So, DST or Rental? And, if DST, what is the right way to analyze these investments from a Boglehead PoV?

rick2427
Posts: 99
Joined: Sun Jan 25, 2015 11:29 pm
Location: Missouri

Re: Boglehead Approved Delaware Statutory Trust?

Post by rick2427 » Mon May 22, 2017 1:18 pm

So, DST or Rental? And, if DST, what is the right way to analyze these investments from a Boglehead PoV?
Hi Rolyatroba,

what did you end up doing?
I'm in a similar situation that you were in 2 years ago and am curious how it worked out for you?

Thanks,
Rick

Rolyatroba
Posts: 206
Joined: Mon Apr 22, 2013 1:14 pm

Re: Boglehead Approved Delaware Statutory Trust?

Post by Rolyatroba » Mon May 22, 2017 5:34 pm

I ended up going the DST route. Very glad I did so far. A little more than a year in, and distributions have been exactly as expected, and the communications and professionalism of the 2 different management companies (for 3 diff. properties) has been excellent.

nnyljh
Posts: 1
Joined: Sun Jan 21, 2018 9:33 pm

Re: Boglehead Approved Delaware Statutory Trust?

Post by nnyljh » Sun Jan 21, 2018 10:18 pm

Hi Rolyatroba,

I am in a similar situation right now regarding how to best manage the sale of a property.

I am just wondering which sponsors you ended up with. Also has the high fees(upfront and some hidden as told by some people) been looked at and found not be an issue for you?

If it's not appropriate to share details in the forum kindly PM me.

Much thanks in advance.
John

Rajsx
Posts: 364
Joined: Wed Mar 21, 2007 10:07 pm
Location: Florida

Re: Boglehead Approved Delaware Statutory Trust?

Post by Rajsx » Mon Feb 19, 2018 3:13 pm

Rolyatroba, Rick & John,

We are in a similar situation, Contract done, Closing scheduled for April 2nd on our Office Building.

Like you all, I do not want to be a Landlord, recently retired, first time to these 1031 Exchange or/and DST deals

We are deciding between the options of -

1)Whether to do a 1031 Exchange or not (will save 120k in Taxes, may have to find a Exchange Intermediary fast), & do a DST-
(Heard about DST high fees ??)
OR
2) Pay taxes , invest proceeds along with our investments all in Vanguard (easy, I like the lazy way to invest, buy & hold)
OR
3) Pay taxes, invest in Commercial Real Estate Crowd Funding Sites , eg- Peer Street, Realty Moghul etc....

Kay Properties called & sent me a list today of their properties-

Any help will be appreciated, let us exchange notes as we go through process(unknown)
We do not stop laughing because we grow old, we grow old because we stop laughing !!

Rolyatroba
Posts: 206
Joined: Mon Apr 22, 2013 1:14 pm

Re: Boglehead Approved Delaware Statutory Trust?

Post by Rolyatroba » Mon Feb 19, 2018 4:11 pm

Rajsx wrote:
Mon Feb 19, 2018 3:13 pm
...

1)Whether to do a 1031 Exchange or not (will save 120k in Taxes, may have to find a Exchange Intermediary fast), & do a DST-
(Heard about DST high fees ??)
OR
2) Pay taxes , invest proceeds along with our investments all in Vanguard (easy, I like the lazy way to invest, buy & hold)
OR
3) Pay taxes, invest in Commercial Real Estate Crowd Funding Sites , eg- Peer Street, Realty Moghul etc....

Kay Properties called & sent me a list today of their properties-

Any help will be appreciated, let us exchange notes as we go through process(unknown)
Almost 2 years in now for being an owner of 3 DSTs, and still quite happy about how it is going. One of the properties, however, did drop their payout rate from about 6% to 5%, so not super happy about that, but it was handled professionally and seem needed.

Since you mentioned Kay Properties, that is who we used to acquire all 3, and I was very happy with that process.

As for your options, it sounds like you understand it well so it will just be a personal financial management decision on your part. For us the 1031 saved about $600k in taxes, so we really had to do something to not recognize most/all of the gains. The DSTs ended up being taken up by ~20% of the proceeds, then put 45% into what we hope to be our retirement home (rented now, but in such a high demand area, pretty easy to be a landlord there), and the remaining 35% in a rental house that we might keep as a second home in retirement (also easy to rent).

nnyljh--I PM'd you on your last post, but it is still in my Outbox, which I believe means you haven't viewed it. Let me know if you're unable to see it.

Rajsx
Posts: 364
Joined: Wed Mar 21, 2007 10:07 pm
Location: Florida

Re: Boglehead Approved Delaware Statutory Trust?

Post by Rajsx » Mon Feb 19, 2018 4:42 pm

Rolyatroba, thank you for your reply,

I am unable to see/read your message, although it says on top right hand corner that 1 message is there waiting , but it does not come up when I click on it, strange...

I am looking into a multifamily commercial real estate if I go that route of 1031 exchange & a DST., as I suppose that would be a hands off kind of investment.

If you do not mind, what were/are the initial & running costs of the 1031 Intermediary & the DST?

Again thanks for your help
We do not stop laughing because we grow old, we grow old because we stop laughing !!

Rolyatroba
Posts: 206
Joined: Mon Apr 22, 2013 1:14 pm

Re: Boglehead Approved Delaware Statutory Trust?

Post by Rolyatroba » Mon Feb 19, 2018 5:29 pm

I am unable to see/read your message, although it says on top right hand corner that 1 message is there waiting , but it does not come up when I click on it, strange...
Oh, the PM I was talking about was to the user "nnyljh" who posted last month, above yours, so no need to worry about that.
I am looking into a multifamily commercial real estate if I go that route of 1031 exchange & a DST., as I suppose that would be a hands off kind of investment.

If you do not mind, what were/are the initial & running costs of the 1031 Intermediary & the DST?
The intermediary was $1,095, and that included all costs for one of our 5 exchange properties. They then charged $320 per add'l property on the multi-property transfer (we sold 1 property, and purchased 2 homes and 3 DSTs). They made a billing error, however, and ended up not charging for 2 of those, so the total bill came to $1,735.

There were no ongoing costs after the 5 exchanges closed.

Rajsx
Posts: 364
Joined: Wed Mar 21, 2007 10:07 pm
Location: Florida

Re: Boglehead Approved Delaware Statutory Trust?

Post by Rajsx » Mon Feb 19, 2018 5:46 pm

Thank you Rolyatroba for the 1031 Exchange fees,

Do the Kay Properties do 1031 Exchange work themselves or they refer you to a Intermediary, which entity was that ?

What do your DSTs charge ? all upfront or any hidden charges ?

Thanks again, your experience is very valuable for us.
We do not stop laughing because we grow old, we grow old because we stop laughing !!

Rolyatroba
Posts: 206
Joined: Mon Apr 22, 2013 1:14 pm

Re: Boglehead Approved Delaware Statutory Trust?

Post by Rolyatroba » Mon Feb 19, 2018 6:18 pm

Rajsx wrote:
Mon Feb 19, 2018 5:46 pm
Do the Kay Properties do 1031 Exchange work themselves or they refer you to a Intermediary, which entity was that ?

What do your DSTs charge ? all upfront or any hidden charges ?
Kay Properties is a broker that sells DSTs from companies that construct them (largely real estate management firms). They don't do any of the intermediary work, but do provide much of the info the intermediary needs.

The intermediary I used was https://www.firstexchange.com/

The entity that runs the DST typically has a management fee that is built in to the P & L, albeit I don't pay much attention to that. I was primarily focused on the quality of the real estate and the local markets, as well as the income/return.

I presume Kay received a commission of some sort, but there were no other costs for purchasing, one-time or ongoing.

Rajsx
Posts: 364
Joined: Wed Mar 21, 2007 10:07 pm
Location: Florida

Re: Boglehead Approved Delaware Statutory Trust?

Post by Rajsx » Mon Feb 19, 2018 6:27 pm

Thanks Rolyatroba for your help.
We do not stop laughing because we grow old, we grow old because we stop laughing !!

Rajsx
Posts: 364
Joined: Wed Mar 21, 2007 10:07 pm
Location: Florida

Re: Boglehead Approved Delaware Statutory Trust?

Post by Rajsx » Mon Feb 19, 2018 7:05 pm

I understand our present due Taxes of $120k will carry on, and if we do 301 Exchange again & buy other properties when the first properties get sold, then the Cap Gains & Dep Recapture Taxes of that sale will be added to the 120k .

At the end of the year, do you get the figures of Depreciation Taxes from the DST, so that you can deduct from your taxes. ?

After we pass, our kids will get the properties with a step up basis, will not have to pay the total due Caps Gains & Depreciation Taxes.

Do I understand this correctly ?

Thanks much
We do not stop laughing because we grow old, we grow old because we stop laughing !!

Rolyatroba
Posts: 206
Joined: Mon Apr 22, 2013 1:14 pm

Re: Boglehead Approved Delaware Statutory Trust?

Post by Rolyatroba » Mon Feb 19, 2018 7:28 pm

Rajsx wrote:
Mon Feb 19, 2018 7:05 pm
I understand our present due Taxes of $120k will carry on, and if we do 301 Exchange again & buy other properties when the first properties get sold, then the Cap Gains & Dep Recapture Taxes of that sale will be added to the 120k .

At the end of the year, do you get the figures of Depreciation Taxes from the DST, so that you can deduct from your taxes. ?

After we pass, our kids will get the properties with a step up basis, will not have to pay the total due Caps Gains & Depreciation Taxes.

Do I understand this correctly ?
Well, it's not the taxes that are carried on (deferred), it is actually the gains that are deferred. And if you sell a 1031 property a year after you acquire it, the gains continue to be deferred as long as you do another 1031 exchange. And I believe you are correct, that your heirs will get a stepped-up basis upon inheriting a property acquired in a 1031 exchange.

For all my DSTs I received an EOY P & L which included all the line items you'd have on a 1040 Schedule E. I do my own taxes, and didn't have any trouble with that.

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